Question

Bunkers, Inc. and Blunders, Inc. are competitors in high-end retailing, and both were organized in October 2017. Bunkers issued $100 par common stock, while Blunders issued $1 par common stock. Mr. Bunkers, president and CEO of Bunkers, inc. contends that his company is preferable as an investment since the par value of Bunkers' common stock is much, much higher than that of Blunders'. Do you agree with President Bunkers? Explain in detail.

Answer 1

No. It cannot be said that if the Issued Price of stock is higher than the stock is the better one. In order to check whether the stock is better or not can be determinded by computing the intrinsic value of the shares and the discounted future cash flows. Say if the intrinsic value of the share is higher than the Issued price than the share is good one as it is undervalued and it has higher potential. But if the Instrinsic value is lower than Issued price the share is over valued.

(The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value.)